UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

or

For the transition period from ____to____

Commission File No. 001-31390

CHRISTOPHER & BANKS CORPORATION

(Exact name of registrant as specified in its charter)

 Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  ☐  YES ☒  NO

As of May 26, 201725, 2018 there were 37,626,49238,075,509 shares of the registrant's common stock outstanding.

CHRISTOPHER & BANKS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

NOTE 1 — Basis of Presentation

 

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Christopher & Banks Corporation and its subsidiaries (collectively referred to as “Christopher & Banks”, “the Company”, “we” or “us”) pursuant to the current rules and regulations of the United States ("U.S.") Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been omitted, pursuant to such rules and regulations. These unaudited condensed consolidated financial statements, except the condensed consolidated balance sheet as of January 28, 2017February 3, 2018 derived from the Company's audited financial statements, should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2017.February 3, 2018.

 

The results of operations for the interim period shown in this report are not necessarily indicative of results to be expected for the full fiscal year. In the opinion of management, the information contained herein reflects all adjustments, consisting only of normal adjustments, except as otherwise stated in these notes, considered necessary to present fairly our financial position, results of operations, and cash flows as of May 5, 2018, and April 29, 2017 and April 30, 2016 and for all periods presented.

 

Recently issued accounting pronouncements

 

 

NOTE 32 — Property, Equipment and Improvements, Net

Property, equipment and improvements, net consisted of the following (in thousands):

 

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In conjunction with an impairment analysis, the Company determined that improvements and equipment at certain under-performing stores and at stores identified for closure were impaired. As a result, the Company recorded approximately $0.1 million and $0.2 million forno long-lived asset impairmentsimpairment during the thirteen week periodsperiod ended May 5, 2018 and approximately $0.1 million during the thirteen week period ended April 29, 20172017.

On April 27, 2018, the Company completed the sale of and April 30, 2016, respectively.entered into an agreement to leaseback its corporate headquarters facility, including the distribution center, in Plymouth, MN. The agreement provided for the sale of the facility for a purchase price of $13.7 million and the subsequent leaseback of the facility for a 15-year period. The lease is classified as an operating lease. As a result, the Company recorded a deferred gain of $7.7 million. As of May 5, 2018, $7.2 million of the deferred gain is reflected in the Condensed Consolidated Balance Sheet under other non-current liabilities, with the remaining $0.5 million included as a component of accrued liabilities and other current liabilities. As part of the transaction, the Company has put $1.7 million in escrow for certain repairs on the building. This amount is considered to be restricted cash and is included within cash and cash equivalents on the Condensed Consolidated Balance Sheet.

 

NOTE 43 — Accrued Liabilities

Accrued liabilities and other current liabilities consisted of the following (in thousands):

NOTE 54 — Credit Facility

The Company is party to an amended and restated credit agreement (the "Credit Facility") with Wells Fargo Bank, N.A. (“Wells Fargo”), as lender. The Credit Facility was most recently amended and extended on September 8, 2014. The current expiration date is September 8, 2019.

The Credit Facility provides the Company with revolving credit loans of up to $50.0 million in the aggregate, subject to a borrowing base formula based primarily on eligible credit card receivables inventory and real estate,inventory as such terms are defined in the Credit Facility, and up to $10.0 million of which may be drawn in the form of standby and documentary letters of credit.

Borrowings under the Credit Facility will generally accrue interest at a rate ranging from 1.50% to 1.75% over the London Interbank Offered Rate ("LIBOR") or 0.50% to 0.75% over the Wells Fargo Prime Rate based on the amount of Average Daily Availability for the Fiscal Quarter immediately preceding each Adjustment Date, as such terms are defined in the Credit Facility. The Company has the ability to select between the LIBOR or prime based rate at the time of the cash advance.  The Credit Facility has an unused commitment fee of 0.25%.

The Credit Facility contains customary events of default and various affirmative and negative covenants. The sole financial covenant contained in the Credit Facility requires the Company to maintain Availability at least equal to the greater of (a) ten percent (10%) of the borrowing base or (b) $3.0 million. In addition, the Credit Facility permits the payment of dividends to the Company's stockholders if certain financial conditions are met. The Company was in compliance with all financial covenants and other financial provisions as of April 29, 2017.May 5, 2018.

The Company's obligations under the Credit Facility are secured by the assets of the Company and its subsidiaries. The Company has pledged substantially all of its assets as collateral security for the loans, including accounts owed to the Company, bank accounts, inventory, other tangible and intangible personal property, intellectual property (including patents and trademarks), and stock or other evidences of ownership of 100% of all of the Company's subsidiaries.

The Company hadThere were no revolving credit loanoutstanding borrowings underon the Credit Facility during eachas of the thirteen week periods endedMay 5, 2018 and April 29, 2017, and April 30, 2016.2017. The total Borrowing Base at April 29, 2017May 5, 2018 was approximately $37.2$35.2 million. As of April 29, 2017,May 5, 2018, the Company had open on-demand letters of credit of approximately $0.3$4.7 million. Accordingly, after reducing the Borrowing Base for the open letters of credit and the required minimum availability of the greater of $3.0 million, or 10.0% of the Borrowing Base, the net availability of revolving credit loans under the Credit Facility was approximately $33.3$26.9 million at April 29, 2017.May 5, 2018.

NOTE 65 — Income Taxes

The Company's liability for unrecognized tax benefits associated with uncertain tax positions is recorded within other non-current liabilities. There has been no material change in the reserve for unrecognized tax benefits since the end of the previous fiscal year. The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense.

The Tax Cuts and Jobs Act ("the Act") was enacted on cash and does not preventDecember 22, 2017. The Act reduced the CompanyU.S. federal corporate tax rate from using35% to 21% as of January 1, 2018. The income tax effects of the Act required the remeasurement of our deferred tax assets and liabilities in accordance ASC Topic 740. The Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin No. 118 ('SAB 118') that allows companies to record provisional estimates of the impacts of the Act during

The following table includes the estimated revenue expected to be recognized in future periods when profitsrelated to performance obligations that are realized.unsatisfied or partially unsatisfied as of May 5, 2018:

NOTE 7 — Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share (“EPS”) shown on the face of the accompanying consolidated statement of operations:

Total stock options of approximately 4.43.9 million and 2.24.4 million were excluded from the shares used in the computation of diluted earnings per share for the thirteen week periods ended May 5, 2018 and April 29, 2017, and April 30, 2016, as they were anti-dilutive.

 

NOTE 8 — Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities

Level 2 – Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable

Level 3 – Unobservable inputs that are significant to the fair value of the asset or liability.

Assets that are Measured at Fair Value on a Non-recurring Basis:

The following table summarizes certain information for non-financial assets for the thirteen weeks ended April 29, 2017May 5, 2018 and the fiscal year ended January 28, 2017,February 3, 2018, that are measured at fair value on a non-recurring basis in periods subsequent to an initial recognition period. The Company places amounts into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. 

NOTE 9 — Legal Proceedings

In connectionWe are subject, from time to time, to various claims, lawsuits or actions that arise in the ordinary course of business. We accrue for loss contingencies associated with a preliminary settlement of pre-litigation employmentoutstanding litigation or legal claims reached in February 2017, we establishedfor which management has determined it is probable that a loss contingency of $1.475 million as of January 28, 2017. In connection therewith, on April 13, 2017, a complaint was filed in state Circuit Court in the Fifteenth Judicial Circuit in Palm Beach County, Florida (the “Florida Circuit Court”) by three named plaintiffs in a purported class action asserting claims on behalf of current and former store managers. The plaintiffs principally alleged that they and other similarly situated store managers were improperly classified as exempt employees and thus not compensated for overtime work as required under applicable federal and state law. On May 4, 2017, the Company entered into a settlement agreement with the named plaintiffsexists and the proposed class. On May 8, 2017, the Florida Circuit Court issued an order approving the class settlement. As approved by the Florida Circuit Court, certain current and former store managers will be eligible to receive payments in connection with time worked in prior years. The settlement of the lawsuit is not an admission by us of any wrongdoing.

The ultimate resolution of legal matters can be inherently uncertain and for some matters, we may be unable to predict the ultimate outcome, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result from an unfavorable outcome because of these uncertainties. We do not, however, currently believe that the resolution of any pending matter will have a material impactadverse effect on our consolidated financial position, results of operations or liquidity.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 28, 2017February 3, 2018 and our unaudited Condensed Consolidated Financial Statements and related Notes included in Item 1 of this Quarterly Report on Form 10-Q. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude.

Executive Overview

We are a national specialty retailer featuring exclusively-designed, privately-branded women’s apparel and accessories. We offer our customer an assortment of unique, classic and versatile clothing that fits her everyday needs at a good value.

We operate an integrated, omni-channel platform that provides our customer the ability to shop when and where she wants, including online or at our retail and outlet stores. This approach allows our customers to browse, purchase, return, or exchange our merchandise through the channel that is optimal for her.

As of April 29, 2017,May 5, 2018, we operated 476462 stores in 45 states, including 320314 Missy, Petite, Women ("MPW") stores, 8279 outlet stores, 3836 Christopher & Banks ("CB") stores, and 3633 C.J. Banks ("CJ") stores. Our CB brand offers unique fashions and accessories featuring exclusively designed assortments of women’s apparel in sizes 4 to 16 and in petite sizes 4P to 16P. Our C.J. Banks brand offers similar assortments of women’s apparel in sizes 14W to 26W. Our MPW concept and outlet stores offer an assortment of both Christopher & BanksCB and C.J. BanksCJ apparel servicing the Missy, Petite and Women-sized customer in one location.

Strategic Priorities Update

Our overall business strategy is to build sustainable, long-term revenue growth and more consistent profitability through the following strategic initiatives:

We are committed to ensuring that we consistently meet our customers’ needs with a differentiated merchandiseproduct assortment that fits her lifestyle at a recognizable value. Over the past twelve months we have increased the flow of fashion offerings to entice her to shop more often. We are focused on ensuring that our assortment is easy to shop so that she can more easily see what is new and build her outfit.

We intend to increasebetter leverage our data and tools to execute a marketing and promotional strategy that will drive traffic and conversion while expanding gross margins. We are committed to our value proposition that recognizes our customer is drawn to the flowstyle, quality and value that we offer. With the assistance of data analytics, we believe there is an opportunity to better leverage our fashion offeringdata to drive fewer, more meaningful promotions. We will continue to analyze, test, react and provide a more versatile assortmentrefine our promotional strategy to encourageensure that we are providing the most attractive offers for our customer, which support our financial goals.

Our omni-channel strategy is designed to provide our customers with a seamless shopping experience allowing her to shop more frequentlywhen and where she wants. New flexible fulfillment options should also allow us to leverage our total inventory across channels to drive sales and lower costs. In January 2018, we launched buy more when she visits. To further support the newness of our merchandise presentations,online, ship to store, we are analyzingin the process of piloting buy online, ship from store and we will pilot buy online pick up in store by the end of summer. Additionally, while we have a well established  and growing ecommerce business, we see an opportunity to improve our promotional cadencewebsite experience. Some of these include enhancing product recommendation capabilities, increasing site speed, and adjustingmaking it easier for her to create an account. We believe these enhancements will further improve her online experience and drive higher conversion on our markdown strategy to emphasize rapid inventory turnover to keep merchandise fresh and current.site.

We have a very loyal customer base that is highly engaged. The personalized customer service that our Associates provide is a differentiator for us and is a contributor to the loyalty our customers exhibit, with 91%approximately 90% of our active customers participating in our loyalty rewards program.

We continue to besaw our customer base stabilize over the past several quarters last year and now we are extremely focused on maximizing the benefits ofincreasing our total customer relationship management (“CRM”) database, Friendship Rewards Loyalty Program (“Friendship Rewards”), and private-label credit card program to strengthen engagement with our customers. Our Friendship Rewards program, in conjunction with our CRM system, allows us to personalize communications and customize our offers.file. We also will continue to leverage our direct andbelieve that leveraging digital marketing channelsis one of the best ways to encourage additional customer visits and increased spending per visit.

Management evaluates our financial results based on the following key measuremeasures of performance:

Comparable sales is a measure that highlights the sales performance of our store channel and eCommerce channel sales by measuring the changes in sales over the comparable, prior-year period of equivalent length.

Our comparable sales calculation includes merchandise sales for:

Our comparable sales calculation excludes:

We believe our eCommerce operations are interdependent with our brick-and-mortar store sales and, as such, we believe that reporting combined store and eCommerce comparable sales is a more appropriate presentation. Our customers are able to browse merchandise in one channel and consummate a transaction in a different channel. At the same time, our customers have the option to return merchandise to a store or our third-party distribution center, regardless of the original channel used for purchase.

As we continue to execute ourOur MPW format conversions we have made changes to theare nearing completion. As such, our base store population that comprisecomprises comparable stores as illustrated inmostly reflects the table below:

Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies.

The following table presents selected consolidated financial data for the first quarter of fiscal 20172018 compared to the first quarter of fiscal 2016:2017:

First Quarter Fiscal 20172018 Summary

Net Sales

The components of the 11.5%3.0% net sales decrease in the first quarter fiscal 20172018 compared to the first quarter of fiscal 20162017 were as follows:

Sales decreased in the first quarter of fiscal 2017 compared to fiscal 2016 primarily due to a 9.7%5.3% decrease in average unit retail prices,transactions, including the effects of a 7.2%3.6% decline in average store count, continued deceleration in mail traffic, and 1.8% decrease incount. Average dollar sale was 1.1% higher than last year with average unit retail outpacing units per transaction, partly offset by higher conversion rates and an increase in eCommerce sales.transaction. The sales decrease was also correlatedis mostly attributable to lower inventory levels atunderperformance in certain product categories and unseasonable weather, particularly in our Midwest and Northeast regions. Sales performance improved as the beginningweather became more seasonal during the latter part of the quarter and lower inventory receipts, particularly fashion tops, contributingas customers responded favorably to the decline in average unit retail prices.our product offering.

To supplement our comparable sales measure, we also monitor changes in other store sales metrics as illustrated in the table below:

Net sales per store and Netnet sales per square foot decreased mainly due to a decline in transactions partly offset by a 1.1% increase in average dollar sales with average unit retail prices, partly attributable to lower inventory levels at the beginning of the quarter and limited fashion inventory receipts.retails slightly outpacing a decline in units per transaction.

Store count, openings, closings, and square footage for our stores were as follows:

Average store count in the first quarter of fiscal 20172018 was 479462 stores compared to an average store count of 516479 stores in the first quarter of fiscal 2016,2017, a decrease of 7.2%3.6%. Average square footage in the first quarter of fiscal 20172018 decreased 5.4%3.1% compared to the first quarter of fiscal 2016.2017.

Gross Profit

Gross margin rate decreased in270 basis points primarily driven by increased product costs, which have been corrected for the first quarterbalance of fiscal 2017 compared to the first quarter of fiscal 2016 primarilyyear, and additional markdowns due to lower merchandise margins and the effects of sales leverage on occupancy expenses. The lower merchandise margins are attributable to continued efforts to exit certain merchandise categories in addition to accelerated markdown activity to manage inventory turns.than anticipated sales.

Selling, General, and Administrative (“SG&A”) Expenses

 

Depreciation and Amortization (“D&A”)

Depreciation and amortization expense increaseddecreased primarily due to the deployment of technology solutions, including new omni-channel capabilities partly offset by the effects of thea decrease in average store count.

Impairment of Store Assets

We recordedThere were no non-cash impairment charges relating to long-lived assets for the thirteen weeks ended May 5, 2018 compared to an impairment charge of $0.1 million related to long-lived assets held at a small number of store locations.

Operating Loss

Our operating loss increased in the first quarter of fiscal 20172018 compared to the first quarter of fiscal 20162017 primarily due to a net sales decrease of $11.5 million and a 320270 basis point gross margin rate decline and net sales decrease of $2.7 million, partly offset by a SG&A decrease of $4.5 million, including the absence of fiscal 2016 non-recurring charges of $2.0$1.2 million.

Interest expense, net

The change in interest expense, net is not material.

Income tax expense decreasedrecorded for the thirteen weeks ended May 5, 2018 was $43,000 compared to income tax expense of $52,000 for the same period of fiscal 2017. Our effective tax rate was (0.8)% for the thirteen weeks ended May 5, 2018 compared to (1.4)% in the first quarter of fiscal 2017 compared to the first quarter of 2016 due to the impact of the valuation allowance on our deferred tax assets, the net operating loss, permanent differences and state income taxes.same period last year.

Net earnings

Our net loss decreaseincrease in the first quarter of fiscal 20172018 compared to our net loss in the first quarter of 20162017 was primarily due to a net sales decrease, a gross margin rate decline and the absence of company-owned life insurance proceedsnet sales decrease partly offset by lower SG&A.

Fiscal 20172018 Outlook

We are implementingworking to implement a number of strategic initiatives addressing merchandising, marketing, eCommercepriorities, including actions to enhance her shopping experience with a well-curated merchandise offering; deliver compelling promotions that support our financial goals; leverage our omni-channel capabilities, and store operations designedattract new customers. We will continue to stabilizeevaluate the business and drive more consistent financial performance going forward. Given the number of changes and time required to rebalance the merchandise assortment, we will not be providing sales and EPS guidance for the near term.further cost saving opportunities.

During the remainder of fiscal 2017,2018, we plan to close 1 MPWCB store, 1 CJ store, and 1 CBMPW store. In addition, weWe plan to convertopen 1 CBOutlet and CJ stores into 1 MPW store. Average square footage for the year is expected to be down approximately 4.5%2.4% as compared to fiscal 20162018 and down 4.8%2.5% in the second quarter.

We expect capital expenditures for the year to range between $6.5$3.0 million and $7.5$4.0 million representing investments in store relocations, merchandising technology applications, and the continued development of omni-channel capabilities.

We expect our taxes for the year to be nominal and to represent minimum fees and taxes.

Liquidity and Capital Resources

Summary

We expect to operate our business and execute our strategic initiatives principally with funds generated from operations and, if necessary, from our amended and restated credit agreement (the “Credit Facility”) with Wells Fargo Bank N.A (“Wells Fargo”), subject to compliance with all covenants and other financial provisions of the Credit Facility. Cash flow from operations has historically been sufficient to provide for our uses of cash. To supplement our financial flexibility, the Company completed the closing of a sale-leaseback transaction of the Company’s corporate facility for $13.7 million in the first quarter of fiscal 2018. As part of the sale-leaseback transaction, the Company has put $1.7 million in escrow for certain repairs to the property.

The following table summarizes our cash and cash equivalents as of the end of the first quarter of fiscal 20172018 and the end of fiscal 2016:2017:

 

The $6.7$5.0 million decrease in cash and cash equivalents is primarily attributable to changes in working capital and the net loss for the quarter. The working capital changes are generally in-line with normal, seasonal patterns.first thirteen weeks of fiscal 2018 partly offset by the proceeds received on the sale of the corporate facility as part of the sale-leaseback transaction.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the first quarterthirteen weeks of fiscal 20172018 compared to the first quarterthirteen weeks of 2016:2017:

The decreaseincrease in cash used in operating activities in the first quarterthirteen weeks of fiscal 20172018 compared to the first quarterthirteen weeks of fiscal 20162017 was primarily due to changes in working capital partly offset byand an increase in the net loss for the 13-weekthirteen week period. The changes in working capital primarily reflectedfluctuations are largely a reflection of seasonal patterns, a decrease in accounts payable associated with a shift in merchandise purchases overseas that impacted timing of payments, and a change in the effectstiming of lower inventory receipts partly offset by an increase in accrued liabilities.payroll accruals.

The increase in cash used inprovided by investing activities in the first quarterthirteen weeks of fiscal 20172018 compared to the first quarterthirteen weeks of fiscal 20162017 was mainly attributable to the absence of available-for-sale investment maturities and the absence of proceeds from company-owned life insurance.the sale of the corporate facility as part of a sale-leaseback transaction. The gross sale proceeds were $13.7 million. Capital expenditures for the first quarterthirteen weeks of fiscal 20172018 were approximately $2.1$1.0 million, which primarily reflected investments in technology associated with our omni-channel capabilities.and merchandising capabilities and expenditures supporting new stores.

Financing activities in the first quartersthirteen weeks of fiscal 20172018 and 20162017 were limited to a small number of shares redeemed by employees to satisfy payroll tax obligations.

We did not pay any dividends in the first quarterthirteen weeks of fiscal 2017.2018. We have not paid any dividends in the last three fiscal years.

Funds generated by operating activities, available cash and cash equivalents, investments and our Credit Facility are our most significant sources of liquidity. We believe that our sources of liquidity will be sufficient to sustain operations and to finance anticipated capital investments and strategic initiatives over the next twelve months. However, in the event our liquidity is not sufficient to meet our operating needs, we may be required to limit our spending. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing facilities or obtain additional financing, if necessary, on favorable terms.

The Credit Facility with Wells Fargo was most recently amended and extended on September 8, 2014. The current expiration date is September 8, 2019. The Credit Facility provides the Company with revolving credit loans of up to $50.0 million in the aggregate, subject to a borrowing base formula based primarily on eligible credit card receivables inventory and real estate,inventory as such terms

are defined in the Credit Facility, and up to $10.0 million of which may be drawn in the form of standby and documentary letters of credit.

The Company hadThere were no revolving credit loanoutstanding borrowings underon the Credit Facility during eachas of the thirteen week periods endedMay 5, 2018 and April 29, 2017, and April 30, 2016.2017. The total Borrowing Base at April 29, 2017May 5, 2018 was approximately $37.2$35.2 million. As of April 29, 2017,May 5, 2018, the Company had open on-demand letters of credit of approximately $0.3$4.7 million. Accordingly, after reducing the Borrowing Base for the open letters of credit and the required minimum availability of the greater of $3.0 million, or 10.0% of the Borrowing Base, the net availability of revolving credit loans under the Credit Facility was approximately $33.3$26.9 million at April 29, 2017.May 5, 2018.

Sourcing

There have been no material changes to our ratio of imports to total merchandise purchases or concentration of supplier purchases in the thirteen weeks ended April 29, 2017May 5, 2018 compared to the fiscal 20162017 year ended January 28, 2017.February 3, 2018.

Quarterly Results and Seasonality

Our quarterly results may fluctuate significantly depending on a number of factors, including general economic conditions, consumer confidence, customer response to our seasonal merchandise mix, timing of new store openings, adverse weather conditions, and shifts in the timing of certain holidays and shifts in the timing of promotional events.

Inflation

We do not believe that inflation had a material effect on our results of operations for the first quarter of fiscal 2017. thirteen week period ended May 5, 2018.

 

Forward-Looking Statements

We may make forward-looking statements reflecting our current views with respect to future events and financial performance. These forward-looking statements, which may be included in reports filed under the Exchange Act, in press releases and in other documents and materials as well as in written or oral statements made by or on behalf of the Company, are subject to certain risks and uncertainties, including those discussed in Item 1A - Risk Factors of our Annual Report on Form

10-K for the fiscal year ended January 28, 2017,February 3, 2018, which could cause actual results to differ materially from historical results or those anticipated.

The words or phrases “will likely result,” “are expected to,” “estimate,” “project,” “believe,” “expect,” “should,” “anticipate,” “forecast,” “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 21e of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, as enacted by the Private Securities Litigation Reform Act of 1995 (“PSLRA”). In particular, we desire to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Quarterly Report on Form 10-Q.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. In addition, we wish to advise readers that the factors listed in Item 1A of our Annual Report on Form

10-K for the fiscal year ended January 28, 2017,February 3, 2018, as well as other factors, could affect our performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed in the quarterly report on Form

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

The Company carried out an evaluation as of the end of the period covered by this report (the “Evaluation Date”), under the supervision and with the participation of its management, including its Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that as of April 29, 2017May 5, 2018 the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

 

Changes in Internal Controls

 

There were no significant changes in our internal controls that could materially affect our disclosure controls and procedures subsequent to the Evaluation Date. Furthermore, there was no change in our internal control over financial reporting during the quarter ended April 29, 2017May 5, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

 

In connectionWe are subject, from time to time, to various claims, lawsuits or actions that arise in the ordinary course of business. We accrue for loss contingencies associated with a preliminary settlement of pre-litigation employmentoutstanding litigation or legal claims reached in February 2017, we establishedfor which management has determined it is probable that a loss contingency of $1.475 million as of January 28, 2017. In connection therewith, on April 13, 2017, a complaint was filed in state Circuit Court in the Fifteenth Judicial Circuit in Palm Beach County, Florida (the “Florida Circuit Court”) by three named plaintiffs in a purported class action asserting claims on behalf of current and former store managers. The plaintiffs principally alleged that they and other similarly situated store managers were improperly classified as exempt employees and thus not compensated for overtime work as required under applicable federal and state law. On May 4, 2017, the Company entered into a settlement agreement with the named plaintiffsexists and the proposed class. On May 8, 2017, the Florida Circuit Court issued an order approving the class settlement. As approved by the Florida Circuit Court, certain current and former store managers will be eligible to receive payments in connection with time worked in prior years. The settlement of the lawsuit is not an admission by us of any wrongdoing.

The ultimate resolution of legal matters can be inherently uncertain and for some matters, we may be unable to predict the ultimate outcome, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result from an unfavorable outcome because of these uncertainties. We do not, however, currently believe that the resolution of any pending matter will have a material impactadverse effect on our consolidated financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS

 

In addition to the other information discussed in this report, the risk factors described in Part I, Item 1A. Risk Factors in our 20162017 Annual Report on Form 10-K for the fiscal period ended January 28, 2017,February 3, 2018, should be considered as they could materially affect our business, financial condition or future results. There have not been any material changes with respect to the risks

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table sets forth information concerning purchases of our common stock for the quarter ended April 29, 2017:May 5, 2018:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

ITEM 5. OTHER INFORMATION

 

None.

*   Filed with this report

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.